The Limitations of “Shower Cap” Sales Compensation Plans
We’ve all seen them in the department store—off-the-shelf, one-size-fits-all products that promise to get the job done under a variety of scenarios. With one-size-fits-all solutions often proving inadequate for solutions of minor consequence, such as shower caps, imagine how detrimental they can be when it comes to life sciences sales compensation plan design. Nevertheless, such one-size-fits-all solutions—what we call “shower cap” sales compensation plans—are rather common in the life sciences industry.
The Uniqueness of the Life Sciences Industry
From the strict legal and compliance considerations to the growing influence of managed care companies, the life sciences industry faces a myriad of circumstances and challenges that make it unique from any other industry. As such, one would want to compensate biopharma sales representatives differently than other compensation-based industries, such as car salespeople, real estate agents, etc. However, life sciences companies often end up utilizing “shower cap” sales compensation plans that do not address the nuances of the industry in which they reside. This, ultimately, results in the sales force not being as motivated and energized as they could be which, accordingly, leaves sales on the table.
Differences Within the Industry
The uniqueness of the life sciences industry is further demonstrated by the many nuances that exist within the industry, necessitating customized sales compensation plans that are not only tailored to the individual company but the individual sales force and product within a company as well. There are many elements of the life sciences industry that have significant implications for the circumstances in which a sales force is selling. Consequently, these considerations must be factored into the sales force’s compensation plan.
Some of these considerations are:
Product Life Cycle. In what stage of the product life cycle is the product? Designing a sales compensation plan for a launch product for which there is little data is completely different from designing a plan for a mature product with years of documented data.
Seasonality. Do the product’s sales vary depending on the season? If a product peaks in a particular season and it is not taken into account in the sales compensation plan design, the company runs the risk of the sales force blowing out its numbers.
Account vs. Prescriber. To what group is the sales force selling? Accounts often forward buy large quantities of a product at once and then decrease purchasing significantly while prescribers largely do not. Prescribing patterns must be considered in the sales compensation plan design.
Managed Care Status. What is the product’s formulary status under the managed care plans in which competitive products are being prescribed? Sales compensation plans should not hold the sales force responsible for competitive scripts against which the product has unfavorable formulary status.
Therapeutic Class. In what therapeutic class does the product compete? Selling an oncology product is drastically different from selling a dermatology product. The differing prescriber pool, etc. must be taken into account when designing the sales compensation plan.
Market Basket. Against what collection of products does the product compete? The indications of the competitors, substitutability of competitors, and whether a product competes in a largely generic or branded environment have implications for how the sales compensation plan is designed.
Acute vs. Chronic. Does the product treat an acute or chronic illness? Sales compensation plans for acute products must take into account the increased frequency at which the sales representative must influence the prescriber while plans for chronic products may require less frequency to impact sales.
Common Illness vs. Rare Disease. Does the product treat a common illness or a rare/orphan disease? Rare/orphan disease products exhibit unique characteristics that have significant implications for sales compensation, including small patient population, lack of data, and lack of physician exposure.
These are just some of the considerations that demonstrate how complex the life sciences sales compensation design process is and why life sciences companies cannot rely on “shower cap” sales compensation plans. Even within a plan, it is critical to vary parameters product to product—the grids, contribution, potential, etc. must be optimized based on the conditions of each individual product. In this way, the sales compensation plan is designed to help a sales force excel in the specific environment in which they sell.
Conclusion
As the life sciences industry continues to grow in volatility and uncertainty, it becomes increasingly more important to refrain from the use of “shower cap” sales compensation plans and realize the full power of a plan customized to the unique needs and challenges of the company, sales force, and product. Adopting a sales compensation plan that is tailored to the unique selling environment in which a sales force resides motivates and energizes the sales force—and a motivated and energized sales force means increased sales.
